2 months until next budget crisis?

A prominent economist known as 'Dr. Doom' says the country's budget dispute will come roaring back soon.

By Kim Peterson Jan 3, 2013 1:14PM
Image: Washington, D.C. (Corbis)We have some breathing room after lawmakers made a fiscal cliff deal on New Year's Day. But the country is far from OK. In fact, one well-known economist says another crisis will hit in two months.

Without Congressional action, the country will see $110 billion in spending cuts commence on March 1, writes New York University professor Nouriel Roubini in the Financial Times. And just as those spending cuts hit, the U.S. will hit the debt ceiling. "That is only the beginning," he added.

Known as "Dr. Doom" for his dour views on the economy, Roubini won acclaim for predicting the collapse of the housing market and the 2008 recession. Now, he says that 2013 will be plagued by numerous debates on the budget and the economy. Later this year, talk will turn to medium-turn fiscal consolidation, triggering yet another argument between Republicans and Democrats, he adds.
So expect a big fight about entitlements, and a series of little fights over tax reform: Should the US introduce a value added tax? A flat tax? Higher (or lower) income taxes? A carbon tax? Should we close corporate tax loopholes to raise more revenue? It'll soon get messy.
There's more. Amid all the fierce debates on the horizon, there will be real damage to the economy. Roubini and other economists expect that the combination of tax increases, spending cuts and an increase in payroll taxes will eat into the country's economic growth. Roubini estimates that it will translate into a 1.2% of GDP drag on the economy this year.

If the economy was strongly growing at around 3.5%, then that wouldn't be as much of a problem, he said. But recently, the economy has only grown at about 2%.

"So the U.S. could quite easily come perilously close to stall speed this year -- or worse, if the eurozone crisis worsens," he added.

So who's right on this issue, Republicans or Democrats? No one, says Roubini. Even typical Republican voters don't want to gut the welfare state, and "Tea Party extremists are more noise than signal."

He says that maintaining a basic welfare state "is right and necessary" in our age of globalization, rapid technological change and demographic pressure. But doing so means higher taxes for the middle class along with the rich.
It will probably take years for the U.S. to confront the reality of its fiscal position and raise revenues to a level sufficient to fund a reformed -- but not gutted -- welfare state. Large fiscal deficits will remain the norm for the next few years, at least so long as the bond market remains quiet, as I believe it will.

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154Comments
Jan 3, 2013 2:33PM
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"A basic welfare state is 'right and necessary'"?  Define basic welfare state.  As of now, a single mother with 2 kids can get almost $600/month in food stamp benefits if she qualifies.  Is $600/month for 1 adult and 2 children "basic welfare"?  Of course this doesn't include all the free lunches at school.  Doesn't Sheriff Joe out in Arizona feed his prisoners on something like $1/day?  What about the free Obama-phone with 250 minutes a month - is that a "basic" need?  What about the 3 bedroom, 1200 square foot Section 8 apartment - is that a "basic" need.

We've gone way past "basic welfare state" when we have people on the dole who don't have to share a bedroom, or who get to eat steak and ribs and shrimp and weigh 400 pounds.  Having a car and a big screen TV and a gaming system and a blue ray player and an i-Pod and a closet full of clothes and a 2-pack a day habit is a bit more than "basic welfare".

The Salvation Army provides "basic welfare".  The United Way and Red Cross and churches and food pantries provide "basic welfare".  The gov has gone way past "basic welfare", to the point that people are lining up to get as much as they can so they can keep doing nothing for as long as they can.  This is unacceptable and unsustainable.

Jan 3, 2013 2:08PM
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Let the cut take place. Stop the out of control spending. Cut the budgets of congress and the President now.
Jan 3, 2013 2:20PM
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Most everybody not on the dole knows that disaster is coming head on. 
Jan 3, 2013 3:31PM
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  I have neighbors across the street, one example, they are a family of seven including obese members. The son-in-law works so that keeps their welfare margin to a maximum and the rest are collecting on it. I overhear them talking on summer days from their yard saying my doctor this and my doctor that. The Patriarch smoked in excess until a few summers ago and now carries around an oxygen tank. The Matriarch is a taxi service for the younger who do not drive but are old enough and from observances able to work. How much medicare/medicaid being doled out here????? They have three although not new albeit not junker vehicles.  

 Another neighbor faking a back problem ( he rides a scooter and plays a beautiful drum set from his basement ), has a Miller Lite can glued to his palms, is overweight. How much SSD being doled out hear????? This is just a small example from a six home area in one neighborhood in our country.  

Jan 3, 2013 3:01PM
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lets start with flat tax 1% if you make under 50,000.00 - 2% if you make 50,to 100,000.00 - 3% if you make 200,000.00, 4%300,00. - to 500,000.00,5% up to 1 million.6% 1million to  5 million.7% on any making over 5 million per year.NO DEDUCTIONS FOR ANY ONE.you want 10 kids fine on your dime not the u.s.a.,people.you want jets to play with fine on your dime not u.s.a.people,NO DEDUCTIONS FOR ANY THING.(YOU MAKE IT YOU PAY IT).the u.s.a.would have so much money they wouldn't know what to do with it.they built vegas on 2 cents on the dollar what does that tell you.
Jan 3, 2013 2:00PM
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Wrong...  Republicans WANT to gut  the "Welfare State" to something we can afford.

This means we are for as much Welfare as we take in. in taxes.  NOT ONE DIME MORE.

There will always be a  leech class sponging off those that work for a living.  i.e. democrats.
Just like there will always be criminals...  more democrats.

Those that would use the government to seize the paychecks of those that work will always be with us.  Republicans just insist that they pay their fair and equal share, and that we stop mortgaging our children's future to fund today's leech class.
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ROFL

 

things are going to get very interesting very soon folks

 

 

Jan 3, 2013 1:49PM
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I expect at least a 10% market pull back by June.
Jan 3, 2013 3:43PM
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I just wonder how bad things have to get before the public refuses to re-elect any member of Congress.
Jan 3, 2013 3:15PM
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If you are of the mindset that believes the teabaggers are all about fiscal responsibility and a smaller more responsive government, where is the harm in that? Having  over 500 representatives in DC of the people is getting little positive done and costing plenty. In this age where the average worker is being pushed down and out by technology and imports, this same technology could be applied to make a leaner government. Whats good for the goose is good for the gander. If we the people have to do more with less, so should the government. How special do they think they are?
Jan 3, 2013 1:50PM
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If you are investing with a less than 5 year time frame, you would have to be an idiot to buy now.
Jan 3, 2013 3:29PM
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How simple can it be? We are spending way more than we can ever, ever pay back in our lifetimes. And for what? Those that will  be saddled with the debt will be salves to it since they will not see the benefit of the spending but will be forced to pay for it. This president and this congress are not serious about taking responsibility, making sacrifices, and planning ahead for our children's future. You see their future being squandered right now. If you are fine with this then you are indeed a thrid-world minded human being and will get what you deserve-a country in ruins, a dictator, and a world wide economic collpase. Oh, not to mention a worldwar. Inflation, no jobs, and continued debt will be the legacy of 2013 and those in control. Rich guys got  their breaks already through corporate sweetheart deals with DEMS-GE, Hollywood, special interest groups that pander to th dems all got big breaks we never will. 
Jan 3, 2013 2:36PM
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Roubini has keen insight into the obvious.
Jan 3, 2013 3:17PM
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The democratic party will tax the people no matter what takes place, for they have wasted everything for 4 years and now it's Bushes fault that we are flat broke and printing money that has no real value.
Jan 3, 2013 3:57PM
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Anyone who was watching the other countries last year, and didn't think it was coming here, are in for a rude awakening. It went well in other countries, after a bit of protest, so expect the same here. Reason, politicians know the people in this country don't even protest at all. And come election time, the people have no memory of what happened, so govt. is at a free reign to do as it pleases. The one thing you won't see is, govt. downsizing like every other industry in this country did. Can't leave any of their cronies behind.......
Jan 3, 2013 3:16PM
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The FISCAL CLIFF, 2012 movie was well played out and well rehearsed.  Congress played us again like a fiddle. We were supposed to be in FISCAL CLIFF at midnight on December 31, but they changed their own plays in the middle of the production.  And, now we've got a sequel.  If they insist on a second version, maybe they will include a bit more drama and have a good ole country style fist fight on the Congressional floors.  It would be more entertaining if they would fight out into the streets and onto the roof tops.  If we have to watch FISCAL CLIFF, 2013 at least let us have some funny scenes in it.  We have seasoned players.  Im sure Beaner and Obummer could write the script to include some good Western action with the female actresses cheering them on, maybe getting in a hit or two themselves. Bikinis or bra and panties flashes would probably pick up the sperm count a bit.
Jan 3, 2013 2:12PM
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I project that we have one fiscal quarter of growth in the stock market on the order of 7%.  So set your limit orders on stocks at risk in a no growth market and be prepared to get out before the ides of March.  
Jan 3, 2013 4:07PM
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There has been a not ending crisis since 08.Its been eased with continuous debt.

 I see no spending cuts at all.Neverending wars and crys about any cuts to military spending.

     Get rid of unconstitutional agencys and put tariffs on foreign goods and lower taxs to bring companys to the usa.

 

Jan 3, 2013 3:15PM
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With the needs of so many, the need will be high.  Please visit fair trade agreements and get Americans back to work.  It's the only way out of this mess.  Basically, a free political move. 
Jan 3, 2013 3:16PM
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8 minutes ago
lets start with flat tax 1% if you make under 50,000.00 - 2% if you make 50,to 100,000.00 - 3% if you make 200,000.00, 4%300,00. - to 500,000.00,5% up to 1 million.6% 1million to 5 million.7% on any making over 5 million per year.NO DEDUCTIONS FOR ANY ONE.you want 10 kids fine on your dime not the u.s.a.,people.you want jets to play with fine on your dime not u.s.a.people,NO DEDUCTIONS FOR ANY THING.(YOU MAKE IT YOU PAY IT).the u.s.a.would have so much money they wouldn't know what to do with it.they built vegas on 2 cents on the dollar what does that tell you.
This is first flat tax that i can agree with...but do not see how it will raise enough cash,  of course 7 % for millionaires does not exactly seem fair,  go from 39 % to 7 %...a big tax cut.....
the other flax taxers talk about like 15 to 20 % for everybody,  seems the working poor and the middle class would take a tax hit more than the wealthy,  as theirs would drop from 39 % to 20 %.
On the coporate rate,  only lower it for companies that hire and manufacture in the U.S.  cannot see giving companies that outsource and work out of tax havens like the cayman islands a tax break so that they can continue to do so.
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